#1 .A recessionary gap develops 1.only when the economy is in recession 2.when r

Question

#1.A recessionary gap develops

1.only when the economy is in recession

2.when resource prices are “sticky” upward

3.only when GDP grows by more than

4 percent 4.only when unemployment exceeds its natural rate
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#2 Given the aggregate demand curve, a beneficial supply shock will (decrease / increase) potential output and (increase /decrease / X ) the price level

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#3 Which of the following are components of fiscal policy

1. government purchases and Money supply

2.Transfer payments only

3. Government purchases only

4. transfer payments, Government purchases, and taxes

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#4. what is most likely to close a recessionary gap in the economy

1. An increase in the compensation for government employees

2.An increase in the income tax rate

3.A decrease in money supply

4.A decrease in the expenditure on infrastructure

Explanation / Answer

1) 1.only when the economy is in recession

2) a beneficial supply shock will increase potential output and decrease the price level

3) 4. transfer payments, Government purchases, and taxes

4) 1. An increase in the compensation for government employees because it will shift the AD rightwards and reduces the recessionary gap.

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